FIF (Foreign Investment Fund)
The Foreign Investment Fund (FIF) rules tax New Zealand residents on deemed income from offshore share portfolios and foreign funds, rather than waiting for an actual dividend or sale. The rules exist because many countries don't require companies to distribute profits, so taxing only realised dividends would let investors indefinitely defer NZ tax on foreign growth shares.
Individuals (and eligible trusts) get a $50,000 de minimis exemption based on the original cost basis of their offshore holdings, not current market value — if your total cost basis across all FIF interests is $50,000 or less, the FIF rules don't apply and ordinary dividend/capital gains treatment applies instead. Above that threshold, investors can choose the lower of two methods: the Fair Dividend Rate (FDR), which deems 5% of the opening market value as taxable income regardless of actual performance, or Comparative Value (CV), which taxes the actual increase in value plus dividends received.
Companies get no de minimis exemption and must use the FDR method exclusively — they cannot elect CV even if their FIF investments fell in value during the year. Common exemptions from FIF altogether include most Australian-listed shares on the ASX all ordinaries index (subject to conditions) and holdings covered by the transitional resident exemption.
A newer optional method, the revenue account method (RAM), applies from 1 April 2025 for eligible new migrants and returning New Zealanders who became NZ tax resident on or after 1 April 2024 and were non-resident for at least 5 years beforehand. Instead of FDR's unrealised 5%, RAM taxes dividends in full plus 70% of realised gains (and allows the same 70% of realised losses to offset RAM income) on qualifying pre-residence unlisted shares, deferring tax until an actual dividend or sale instead of an annual deemed return.
How it works
The $50,000 de minimis is measured against cost basis, not current market value, which catches out investors who bought modestly but have since seen strong growth — a portfolio bought for $40,000 that has grown to $90,000 in market value is still under the FIF threshold, because the test looks at what you paid, not what it's now worth. Once your total FIF cost basis crosses $50,000, all of your FIF interests come into the regime together, not just the amount above the threshold.
For most individuals the Fair Dividend Rate method is the default choice because it's mechanically simple: 5% of the 1 January opening market value of your FIF interests is deemed taxable income for the year, regardless of whether the investments actually rose, fell, or paid a dividend. Comparative Value can produce a lower (or nil) result in a year the portfolio actually fell in value, which is why individuals are allowed to compare both methods each year and use whichever gives the lower FIF income — companies don't get this choice and must use FDR exclusively.
FIF income is reported on your IR3 each year under the foreign investment income section, and a common mistake is assuming a market downturn means no FIF income is due — under FDR, a loss year can still generate a tax bill because the calculation ignores actual performance. Keeping accurate records of cost basis and opening-year valuations from the year you first crossed the threshold is essential, since IRD can query the figures years later.
Example: FDR tax on an offshore share portfolio
An investor holds foreign shares with a cost basis of $80,000, so the $50,000 de minimis doesn't apply and the FIF rules kick in. At the start of the tax year, the shares had an opening market value of $100,000.
Under the Fair Dividend Rate method, deemed FIF income is 5% of that opening value: $100,000 x 5% = $5,000. This $5,000 is added to the investor's other taxable income and taxed at their marginal rate, regardless of whether the shares actually rose or fell in value during the year.
Frequently asked questions
Does the FIF $50,000 threshold apply to what my shares are worth now or what I originally paid?
It's based on the original cost basis of your offshore holdings, not their current market value, so a portfolio that has grown well above $50,000 in value can still be under the de minimis if you paid less than that.
What happens if I buy more foreign shares partway through the year and cross the $50,000 threshold?
The FIF rules apply for the whole income year once your total cost basis exceeds $50,000 at any point, not just from the date you crossed it, so all your FIF interests for that year come into the calculation.
Do I still owe FIF tax under FDR if my foreign shares lost value during the year?
Potentially yes — the Fair Dividend Rate method deems 5% of opening market value as income regardless of actual performance, though individuals can switch to Comparative Value in a loss year if that produces a lower result.
Related Terms
PIE
A Portfolio Investment Entity (PIE) is a type of managed investment fund that is taxed at the investor's Prescribed Investor Rate (PIR) rather than the standard income tax rates.
Transitional Resident
A transitional resident is someone who has just become a NZ tax resident AND has not been NZ tax resident at any point in the previous 10 years.
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